Week 38 Day 3: Retirement Phases: Go-Go, Slow-Go, and No-Go

Phase 1 -- Go-Go (ages 65-75): You travel, eat out, renovate the house, pursue hobbies. Spending is 100-110% of pre-retirement levels. Phase 2 -- Slow-Go (75-85): You travel less, socialize more locally, spend less on activities. Spending drops to 70-80% of Go-Go levels. Phase 3 -- No-Go (85+): Activities are limited, but healthcare costs may rise dramatically. Spending is 60-70% of Go-Go plus potential care costs.

Retirement spending patterns (based on actual retiree data): (1) The 'spending smile.' Contrary to the assumption of flat spending, Blanchett (2014) found that real (inflation-adjusted) spending declines in early and mid-retirement (as activity levels drop) but rises in late retirement (as healthcare needs increase). The spending pattern resembles a U or smile shape. (2) Go-Go years planning: these are your healthiest, most active years. This is when you take the European trip, visit the national parks, entertain grandchildren. Plan to spend MORE in these years, not less. If you wait, you may not have the health or energy. (3) Slow-Go years reality: most retirees naturally spend less as they age. Eating out declines. Travel declines. Shopping declines. The reductions are gradual and often unplanned -- they just happen as energy and mobility decrease. (4) No-Go years risk: the major financial risk in late retirement is NOT regular spending (which is low) but catastrophic healthcare costs. Long-term care (nursing home, assisted living, home health aides) costs $50,000-$150,000/year. Medicare does not cover most long-term care. This is the risk that breaks retirement plans. Planning implications: (a) Spend generously in the Go-Go years while you can enjoy it. (b) Expect spending to naturally decline in the Slow-Go years. (c) Maintain a contingency reserve or long-term care insurance for No-Go year healthcare costs. (d) Your retirement plan should model declining real spending with a healthcare bump, not flat spending.

Blanchett (2014) analyzed the Consumer Expenditure Survey data and found that real spending declines by approximately 1-2% per year in retirement -- but with a significant uptick in healthcare spending after age 80. The net effect: total spending follows a 'smile' curve, with the bottom of the smile around ages 75-80. This finding challenges the standard retirement planning assumption of constant real spending (which overfunds mid-retirement and underfunds early and late retirement). Bernheim, Skinner, and Weinberg (2001) found that 44% of retirees experienced a sharp drop in consumption at retirement -- the 'retirement consumption puzzle' -- suggesting either involuntary spending reduction (insufficient savings) or voluntary re-optimization (reduced work-related expenses). Banks, Blundell, and Tanner (1998) attributed much of the decline to the cessation of work-related expenses (commuting, work clothes, meals out) rather than genuine utility reduction. For planning purposes, the Blanchett model suggests using a 'dynamic spending' assumption that reduces real spending by 1-2%/year after retirement but adds a healthcare loading factor of +$30,000-$50,000/year for ages 85+ (reflecting the probability-weighted cost of long-term care). The Genworth Cost of Care Survey (2023) reports median annual costs of: home health aide $75,500, assisted living $64,200, and nursing home (semi-private) $104,000. At these costs, a 3-year nursing home stay ($312,000) can devastate a retirement portfolio that was otherwise well-funded. Planning for the No-Go years requires either self-insurance (additional savings earmarked for healthcare), long-term care insurance (increasingly expensive and limited), or a combination of both.